Lack of Conventional Financing Sources - Where can you obtain cash to grow your business
By Christopher A. Smith, CEO, Pawnbroker Financing
?
You feel stuck. Some days you wonder why you made the decision of going into the pawn business to begin with. A lack of capital keeps you from or lending money and leads your customers to seek out one of your competitors. You have turned to banks for more capital only to be rejected time and again. Perhaps out of desperation you took out a Merchant Cash Advance only to learn afterwards that your APR is in excess of 100% and that daily deductions from your account are bleeding you dry.
?
Unfortunately, you are not alone. Despite dealing mostly in cash, pawn shops face an uphill battle when trying to get their hands on capital to grow their businesses. Conventional lenders understand little about the pawn business. Those that do are wary of getting involved in such a cash dependent business.
?
There are several additional reasons why pawn shops are placed at a unique disadvantage when attempting to raise capital. Unlike other industries that are often dominated by large corporations, nearly 85% of all pawn shops are independently owned small businesses. Small businesses generally have a harder time obtaining financing than larger entities.
?
The pawn industry is one of the most heavily regulated non-depository providers of consumer financial services in the United States. Despite providing an immeasurable benefit for American families needing quick access to cash, the pawn business is often cast in a negative light by the public. This is especially true following the Department of Justice’s recent initiative known as Operation Choke Point. The initiative led to the investigation of banks in the U.S. and some of their clients including pawnbrokers, firearm dealers, payday lenders, and others.
?
Following Operation Choke Point, many pawn shops that were able to overcome industry challenges to establish relationships with conventional banks were sent discontinuance letters. Banks simply sought to manage risk by cutting ties with businesses that deal heavily in cash. For pawn shops, cash is king. In fact, cash is by far the most important part of any pawnbroker’s operations.
?
Pawn or collateral loans are the core of a pawnbroker’s business. Lacking cash and access to conventional sources of financing, Americans frequently turn to pawn shops for short term loans. While it is true that the national average for redemptions is some 85 percent, pawn shops need to have the capital to float collateral loans until they are repaid. In addition, without the continued access to cash, pawn brokers will be unable to take on new customers and successfully scale their businesses.
?
Pawn shops are heavily impacted by the seasonal and cyclical nature of the business. During peak times, pawnbrokers need to satisfy the increased demand of their clients. They need cash on hand to buy goods and offer loans. Pawn shops lacking capital are placed at a significant competitive disadvantage to more heavily funded operations. As a pawn shop’s available capital decreases, its ability to make competitive offers also decreases. As a result, customers are left to shop around for the best offer, taking the possibility of a nice profit with them.
?
A lack of conventional lending sources has led pawnbrokers to turn to Merchant Cash Advance (“MCA”) companies for working capital. In its most primitive form, MCAs work by providing borrowers with a lump sum loan in exchange for a portion of future credit card sales or bank deposits. The loan is typically for a short period, like 3 to 6 months. Payments are usually taken by the MCA lender daily by directly deducting the funds from the pawnbroker’s account. By the time you are able to pay off the loan, your APR will likely be in excess of 100%.??
?
To add insult to injury, the higher the amount of your account deposits the higher your APR will be. The reason for this is that you are agreeing to repay a fixed amount. For instance, suppose you are borrowing $100,000 and will have to repay $130,000 within 6 months. If you repay the loan in 3 months, your APR would be at least 120%, a huge short-term profit for a MCA lender. However, if you repay the loan over 6 months, your APR would be at least 60%. Not only is your effective interest rate higher when you pay the loan off early, but there is absolutely no benefit to doing so. You are on the hook for the amount that you have agreed to repay, and you might even be hit with an early repayment penalty.
?
Pawnbrokers that resort to Merchant Cash Advances often find themselves in a vicious debt cycle that can cripple their business. Daily deductions from sales can bleed a shop dry. Once the loan is repaid the broker is again in need of capital and often reups for another round of financing. And on the cycle goes with the pawnbroker unaware that whatever return on investment he or she is experiencing from a greater access to capital, it is likely being dwarfed by interest and fees on the MCA.
?
Many successful pawnbrokers have been in the business for decades, learning the trade from family members. The generational nature of the industry leads many pawnbrokers to turn to family and friends for funds. While family may provide favorable terms, it is not uncommon for them to request repayment at the most inopportune of times. Even if you have the funds to repay them, you are left in the same position as you started.
领英推荐
?
Financing Solution for Pawnbrokers
?
Pawnbroker Financing (“PBF”) offer working capital solutions specifically tailored to the needs of the pawn industry. The PBF team combines everything they know about the pawn industry with decades of experience in commercial lending to offer a convenient, fast, flexible, and affordable solution to scale your pawn business.
?
PBF recognizes how labor intensive running a pawn business can be and the demands that it places on your time. For this reason, they offer customers a seamless and efficient application process. Banks and other sources of conventional financing typically drag your application process out for weeks or even months at a time. PBF can get you set up with a line of credit in as little as several days, allowing you to focus on what you do best.
?
PBF is not a onetime lender looking to make a quick profit by charging astronomical interest rates. They value the relationship with customers and seek to grow with their business. As your business grows, they offer you the ability to increase your credit line. With a greater access to funds, you will not have to turn a customer away and can finally focus on expanding. If your shop is already saddled with debt, PBF can work with you to refinance and break out of the vicious debt cycle that is crippling your business.
?
Pawnbroker Finance was founded by Christopher Smith, a commercial banker with over 35 years of experience. Frustrated by the lack of financial products for the pawn industry, Christopher made it his goal to ensure that no U.S. based pawn shop is denied the possibility of expanding due to a lack of capital.
?
If you are a pawnbroker looking to expand, or to restructure existing debt obligations, please contact Pawnbroker financing today to discuss your options.
?
PawnBroker Financing
Christopher A. Smith
2701 W 84th Avenue, Suite 202
Westminster, CO 80031
(303) 373-1300
Email:?[email protected]
?